November 2015 Market Commentary

Lately we have seen some IPO's either delay going public (Neiman Marcus and Albertsons) or discount their offering price (First Data Corp). This typically is flagged as a warning sign the market is showing some signs of fatigue. Of course we have seen a very nice October run but this doesn't necessarily mean companies should rush back into the IPO game.

The IPO market is driven by supply and demand for shares of a given company based on an expected offering price. Once the company goes public the price is then dictated by the market.  Last year, 2014, was one of the hottest years for IPO's since 2000. Over 270 companies went public and raised nearly $85 billion!  Alibaba lead the way with the largest IPO in history. Part of the influx of IPOs last year may be credited with interest rates being at record lows. Companies seemed rushed to file to take advantage before rates could go back up. Of course, now we know, rates haven't.

With so many IPO's in a short period it was not unreasonable to wonder if some "unqualified" companies were rushing to cash in. The dot com bubble is always used as an example. Many ended up out of business with shareholders left holding the bag. This lead to a lack of confidence in the IPO and stock market. Far too many companies and banks were blinded by potential IPO profits by going public vs. what was in the best interest for the companies long term.  Many investors were burned and it took years for confidence and capital to return to the markets.
This year is is not over yet but the thirst for IPOs has slowed compared to last year. I think this is a good thing. We are in the midst of an unsurprisingly poor earnings season. Delaying an IPO seems reasonable and shows the company may have a longer term outlook, which is always a welcome thing.